After decades of inaction, Iraq is finally moving forward in adopting a more climate friendly energy strategy. In recent weeks, it has stepped up efforts to reduce sharply the enormous amounts of natural gas that it flares into the atmosphere and pushed forward with contracts for the country’s first solar power plant.

Although Iraq is the second-largest oil producer in OPEC after Saudi Arabia, it is a net natural gas importer because lack of infrastructure investment has meant that until 2023 it was flaring roughly half of the estimated 3.12 billion cubic feet per day of gas produced in association with crude oil. According to the World Bank’s Global Gas Flaring Tracker, Iraq is the world’s second-largest emitter after Russia. Iraq’s West Qurna 2 oil field, operated by Russia’s Lukoil, is the biggest source of flaring in the world.

The practice of burning gas into the atmosphere has prevented Iraq from monetizing fully its significant gas potential, forcing it to rely on costly imports of gas and electricity from Iran, a dependency that is complicated by U.S. sanctions on financial dealings with Tehran. Gas imports are often less than contractual volumes and at times halted altogether during periods of high domestic demand in Iran. Efforts by Baghdad to seek alternative gas suppliers have not yet been successful despite negotiations with other potential suppliers, including Kuwait and Qatar.

In 2023, Iraq received only 902 million cubic feet per day of gas from Iran via two pipelines, although contractual volumes agreed upon were around 1.4 bcf/d, according to Izzat Sabir, deputy oil minister for gas affairs, in a March 8 interview with MEES. This did not stop Baghdad from renewing its agreement with Tehran. At the end of March, Iraq’s Ministry of Electricity and the National Iranian Gas Company signed a five-year agreement for the supply of up to 1.8 bcf/d of Iranian gas, replacing an existing deal under which contractual volumes were theoretically set at 2.5 bcf/d in the summer and 1.6 bcf/d in the winter, though full volumes were not delivered.

Baghdad does not need U.S. waivers to import Iranian gas, as it does for electricity imports that are coming under increasing scrutiny from U.S. lawmakers. But payment remains hindered by sanctions, leading to the buildup of significant debt by Iraq to Iran – currently estimated at $11 billion. Under the new deal, Iran can nominate companies to load refined products from refineries in Iraq, and the amounts will be deducted from Iraq’s debt.

Washington has repeatedly urged Iraq to ease reliance on Iran, but the latest contract and its term length would indicate that Iraq does not see an alternative if it is to meet demand for gas and electricity between now and the end of the decade, while it develops its own gas strategy. These plans involve building new gas gathering stations, pipelines, and interconnections to connect to gas hubs, some of which are under development, in an effort to attain zero methane emissions.

Gas flaring is harmful to health and the environment in a country that is already suffering from the effects of global warming that have led to drying rivers, higher seawater salinity, and desertification, which has in turn caused more frequent dust storms. Methane emitted from gas operations is a potent greenhouse gas that is blamed for climate change.

In its November 2022 Iraq Country Climate and Development Report, the World Bank found that some three-quarters of Iraq’s total greenhouse gas emissions were attributed to the energy sector, mainly from electricity, oil, and gas operations and transportation. Although Iraq accounted for just 0.6% of global carbon dioxide emissions in 2020, “Iraq has one of the highest levels of carbon intensity (emissions per GDP) compared to its regional and income peers,” it added. In 2020, the amount of gas flared by Iraq amounted to $2.5 billion in “foregone annual revenue” and would have provided 10 gigawatts of electricity generation capacity.

Data submitted by Iraq to the Gas Exporting Countries Forum shows the huge gap between domestic supply and consumption. In 2023, Iraq produced 348 bcf of marketed gas and consumed 722 bcf.

Plans were already in place to tackle the flaring problem and develop nonassociated gas fields, but these have picked up pace since the United Nations COP28 climate summit in Dubai, where Iraq was among 150 countries to sign up to the global pledge to end methane emissions by 2030.

Sabir said in the MEES interview that recent expansions of existing gas gathering and treatment plants have allowed Iraq to flare less than 40% of the raw gas produced at the wellhead compared with more than 65% a decade ago.

This was achieved largely by expanding the country’s biggest and, so far, only gas processing plant, the Basrah Gas Company, a joint venture of Iraq’s state-owned South Gas Company, Shell, and Japan’s Mitsubishi. One of the limitations in the effort to minimize gas flaring is that the Basrah Gas Company receives raw, associated gas from just three of the big oil producing fields in southern Iraq – the supergiant Rumaila field, Zubair, and West Qurna 1. In 2023, the three fields supplied a total 910 mcf/d of gas to the Basrah Gas Company, which had capacity to process 1.05 bcf/d. The Basrah Gas Company has been expanding its capacity with the addition of two units to process 400 mcf/d: The first 200 mcf/d was due to come on line in early 2024 with the second unit scheduled to be operational by 2025.

The Basrah Gas Company is operating below its design capacity because some of the raw gas is being diverted to power stations needed to operate oil field equipment, particularly at the Zubair field, which is operated by Italy’s Eni. Iraq’s ability to capture all flared gas by 2030 to meet its zero methane pledge hinges on efforts by the Basrah Gas Company to reduce flaring from southern fields and completion of the Gas Growth Integrated Project being undertaken by TotalEnergies.

Eni has reportedly been supplying some of the associated gas produced from the field to a nearby 700-megawatt power plant. The issue is sensitive, and the Basrah Gas Company has not pressed the point with Eni because to insist on the full volume of associated gas would mean depriving the local communities of electricity and prove unpopular. The gas being diverted is sweet gas that contains valuable liquids and condensates that are not being exploited, so they are being wasted.

The Basrah Gas Company was established a decade ago to treat and process nonassociated gas from the three oil fields that produce roughly a combined 1 million barrels per day of Iraq’s crude oil. Billed as “one of the largest flare reduction projects in the world,” the company’s key objective is to gather and process the gas for use in power generation and produce liquefied natural gas, some of which is exported. Two trains each with capacity to process 200 mcf/d of gas are under construction, with financing from the International Finance Corporation, and due to be completed in early 2024, taking total capacity to 1.4 bcf/d. In theory, this would result in capturing around 93% of all gas from the three so-called first licensing round fields, a reference to the oil fields awarded in Iraq’s first post-2003 international bidding round.

The technical service contracts under which the foreign oil companies operate allow for the use of some associated gas for operational purposes, but there is no obligation to deal with the gas, some of which is still being flared.

The Basrah Gas Company’s responsibility does not extend to the other major producing fields in southern Iraq, including Russian Lukoil-operated West Qurna 2 and state-operated Majnoon, both significant contributors to methane emissions. The associated gas from these fields will be part of the Gas Growth Integrated Project that was awarded to TotalEnergies as part of a cluster of contracts valued at $27 billion. The project involves development of the Ratawi oil field, establishing a gas hub on the same site. The French major will also establish a water project for injection into southern oil reservoirs to maintain pressure as well as a 1-GW solar energy plant.

The Ratawi gas hub, which is not likely to be delivered before 2027, will handle associated gas produced not only at Ratawi but also the West Qurna 2, Majnoon, Tuba, and Luhais oil fields. At its peak the hub is slated to process 600 mcf/d of raw gas to produce around 500 mcf/d of dry or sales gas.

The government of Prime Minister Mohammed al-Sudani has prioritized development of Iraq’s largely untapped natural gas reserves, officially estimated at 3.7 trillion cubic meters. To attract foreign investors, the Ministry of Oil has sweetened contract terms and, in October 2023, launched two new, mainly gas-focused bidding rounds for 30 blocks under improved contract terms that are profit-sharing models rather than the straight technical service contracts that offer slim profit margins.

Political wrangling over contract awards in the past and then security concerns following the incursion into Iraq of militants from the Islamic State in Iraq and the Levant in 2014 resulted in delays to gas development projects. Five gas contracts that were awarded in 2018 were finally signed in late 2023 and two more licensing rounds were launched shortly afterward. Some of the assets on offer are discovered but not yet developed fields while others are exploration blocks. Most of Iraq remains relatively underexplored, and the government wants to fast-track gas projects in an effort to end its reliance on imports.

One project that would provide a boost to Iraq’s flare-reduction effort is the Nahr Bin Omar gas field development that appears to be moving forward. Industry sources said the Oil Ministry had awarded a build, own, operate, and transfer contract to Iraq’s private Raban Al Safina group. The project entails development of the Nahr Bin Omar gas field along with two units to be developed sequentially to process 150 mcf/d of sweet gas and a second of equal size for sour gas.

Iraq is currently capturing about 100 mcf/d of associated gas produced at Nahr Bin Omar, sending it to a nearby power plant, while another 50 mcf/d is being flared, according to a South Gas Company official.

On April 2, Iraq’s Cabinet approved $3.25 billion in sovereign “loan” guarantees (inclusive of interest) to lending banks that will cover the Nahr Bin Omar development in Basra province. This replaces previously approved sovereign “payment” guarantees. As opposed to only guaranteeing state payment for produced gas, the government will instead be held liable for 11 years for loans taken up by Halfaya Gas, a subsidiary of Raban Al Safina.

A key boost came in 2023 from the China National Petroleum Corporation, which fed up to 160 mcf/d of captured gas from its 400,000 b/d capacity Halfaya oil field in Maysan province to nearby power plants after overhauling the field’s existing gas receiving station. Sabir confirmed that the commissioning of the 300 mcf/d Halfaya Gas Processing Project was imminent. This will provide up to 200 mcf/d of sales gas once fully on line, potentially before the summer.

Based on the official project pipeline of Iraq’s Oil Ministry and previous announcements, Iraq plans to add about 700 mcf/d of additional processing capacity this year, according to MEES. Apart from the 300 mcf/d at Halfaya, less than 200 mcf/d from other projects is expected to be commissioned before year end, due to delays and feedstock problems.

Theoretically, Iraq’s processing capacity could increase by 1.93 bcf/d by 2030, which would take nominal processing capacity to over 3.2 bcf/d. However, should Iraq’s oil production quota as part of commitments to the OPEC+ alliance increase, it would mean more associated gas is produced that cannot all be processed.

Baghdad plans to increase its crude oil production capacity to 6 mb/d by 2029, from around 4.7 mb/d. Excluding the Kurdistan region, federal Iraq produced 4.12 mb/d in February according to MEES estimates. Achieving this target will require water for injection and hinges on TotalEnergies delivering a 5 mb/d water intake facility.

Iraq has been a laggard in developing its renewable energy resources despite having significant irradiation potential. Although it has announced agreements in principle with a number of solar developers, including Saudi Arabia’s ACWA Power, Power China, and Norway’s Scatec, only one has moved forward – the 1 GW TotalEnergies project. Iraq has set a target of generating up to 12 GW from solar power by 2030, but even if all the projects under discussion proceed without delay, they would add up to around 4.5 GW, which would not be enough to achieve the target by the end of the decade. According to the latest statistics by the International Renewable Energy Agency, Iraq had just 1,599 megawatts of renewable energy capacity at the end of 2023.

TotalEnergies announced April 9 that it had signed land and interconnection contracts for the Ratawi solar plant. These cover construction of a 112-mile overhead transmission line to connect to the grid in Basrah and installation of a substation.

The French company said the 1 GW plant would be “one of the largest clean solar power plants in the Middle East and North Africa region,” that will supply clean electricity equivalent to powering 350,000 homes. Iraqi News reported that the plant would be built in four stages over two years.

That these projects are moving forward now is largely because Iraq is experiencing a rare period of political stability, allowing the Sudani government to streamline policy decisions. But there are still challenges that loom large, not least being the presence of pro-Iranian militant groups that have been recently launching attacks against U.S. and Israeli targets from Iraqi soil. So far, that has not had an impact on oil and gas operations. What is clear is that Baghdad will need to change course and adopt a more robust environmental policy to meet if it is to deflect what the World Bank has said is building up to a “perfect storm.”